Can Your Nonprofit Employer Lose PSLF Eligibility Under Trump's Executive Order?

No. Your employer’s PSLF eligibility is unchanged. On June 30, 2026 — the day before the rule would have taken effect — federal courts struck down the regulation that would have let the Department of Education disqualify nonprofit and government employers from Public Service Loan Forgiveness. The rule never took effect. Employer eligibility is still governed by the longstanding standard: every government agency and 501(c)(3) nonprofit qualifies.

• The “substantial illegal purpose” rule was vacated June 30, 2026, and never took effect

• No employer was ever disqualified, and no borrower lost PSLF credit

• Two federal courts struck the rule down in separate rulings the same day

• The Department of Education may appeal, but as of late July 2026 it had not

On October 31, 2025, the Department of Education finalized a rule that would have allowed it to declare certain nonprofit and government employers ineligible for PSLF. The rule amended 34 C.F.R. § 685.219 and was scheduled to take effect on July 1, 2026. It implemented Executive Order 14235, signed by President Trump on March 7, 2025.

It never got the chance. On June 30, 2026, two federal courts vacated the rule — wiping it from the books the day before its effective date.

The rule would have introduced a “substantial illegal purpose” standard. Under it, the Secretary of Education would have had sole authority to determine whether a qualifying employer — including any 501(c)(3) nonprofit or government agency at the federal, state, local, or tribal level — should be excluded from PSLF. There was no automatic court review built into the administrative process.

An employer flagged for potential disqualification would have received notice, had an opportunity to respond, and could have either entered into a corrective action plan or reapplied for PSLF eligibility after 10 years.

What the rule would have changed for borrowers:

• Future credit would have stopped accruing at a disqualified employer. A borrower would have needed to change employers to continue making qualifying payments toward the 120-payment requirement.

• Past credit would have been preserved. The rule was written to apply prospectively only. Months of qualifying employment already certified on the PSLF form would have counted even if the employer were later deemed ineligible.

• Individual borrowers could not have challenged an employer disqualification. The administrative process would have run between the department and the employer.

What actually happened:

No employer was ever disqualified. No borrower lost PSLF credit. The rule was struck down before it took effect, so the “substantial illegal purpose” standard never applied to anyone.

The rule’s weaknesses showed early. During the negotiated rulemaking sessions in June and July 2025, participants questioned whether the department had statutory authority to make these changes and whether any PSLF-eligible employer had ever engaged in the activities described in the rule. The department did not identify a single example — a gap that later featured in the court rulings striking the rule down.

Executive Order 14235, signed March 7, 2025, directed the Secretary of Education to revise the PSLF regulations so that the definition of “public service” would exclude organizations engaged in activities with a “substantial illegal purpose.”

The order listed five categories of activity that could have triggered disqualification under the now-vacated rule:

1. Aiding or abetting violations of federal immigration laws, including 8 U.S.C. § 1325.

2. Supporting terrorism, including facilitating funding to or operations of organizations designated as Foreign Terrorist Organizations under 8 U.S.C. § 1189, or engaging in violence to obstruct or influence federal government policy.

3. Child abuse, which the order defines to include “the chemical and surgical castration or mutilation of children” and “the trafficking of children to so-called transgender sanctuary States for purposes of emancipation from their lawful parents”.

4. Engaging in a pattern of aiding and abetting illegal discrimination

5. Engaging in a pattern of violating state tort laws, including laws against trespassing, disorderly conduct, public nuisance, vandalism, and obstruction of highways

The order’s preamble characterized the PSLF program as having been “abused” by the prior administration and accused it of directing tax dollars into “activist organizations” that “harm our national security and American values.” No specific examples or evidence were cited.

The department’s position was that the rule protected taxpayers by ensuring PSLF eligibility was limited to employers engaged in lawful activities and legitimate public service. Plaintiffs in the three lawsuits argued the categories were designed to target organizations whose missions the administration opposes — particularly those working in immigration, civil rights, healthcare for transgender youth, and political advocacy. The courts ultimately agreed the rule could not stand.

Had the rule taken effect on July 1, 2026, the practical impact would have depended on whether a borrower’s employer was determined to have a “substantial illegal purpose.”

An estimated 2.5 million federal student loan borrowers are working toward PSLF. The rule would have applied to all qualifying employers — government agencies and 501(c)(3) nonprofits alike — not just nonprofits.

A borrower whose employer was disqualified would have stopped accruing new credit toward the 120-payment requirement at that employer. Months of qualifying employment already certified would have been preserved. The borrower would have needed to find a new qualifying employer to resume progress, but would not have needed to restart the 120-payment count.

Borrowers would have had no direct role in the disqualification process and no way to appeal an employer determination.

None of this happened. Because the rule was vacated before its effective date, no employer was ever evaluated under the standard, and the practical rules for borrowers today are the same as they were before the rule was finalized.

Three separate lawsuits filed in November 2025 asked the courts to strike the rule down before it took effect. They succeeded.

National Council of Nonprofits v. McMahon was filed on November 3, 2025, in the U.S. District Court for the District of Massachusetts before Judge Myong J. Joun. The plaintiffs include the cities of Boston, Chicago, Albuquerque, and San Francisco, the County of Santa Clara, and major labor unions, including the American Federation of Teachers, AFSCME, and the National Education Association, along with the National Council of Nonprofits and the National Association of Social Workers. Democracy Forward Foundation and Protect Borrowers represent the plaintiffs.

Robert F. Kennedy Center for Justice and Human Rights v. McMahon was filed on November 4, 2025, in the U.S. District Court for the District of Columbia before Judge Amir H. Ali. The plaintiffs are Robert F. Kennedy Human Rights, the American Immigration Council, The Door – A Center of Alternatives, and LULAC (League of United Latin American Citizens). Student Defense and Public Citizen Litigation Group represent the plaintiffs.

Commonwealth of Massachusetts v. U.S. Department of Education was filed on November 3, 2025, in the U.S. District Court for the District of Massachusetts, also before Judge Joun. The plaintiffs are a coalition of 22 state attorneys general led by Massachusetts AG Andrea Joy Campbell and New York AG Letitia James. The two Massachusetts cases were consolidated before Judge Joun and decided together.

All three lawsuits made overlapping legal arguments:

• The rule exceeded the department’s authority. The Higher Education Act provides that all government agencies and 501(c)(3) nonprofits are qualifying employers for PSLF. Congress gave the Secretary no discretion to selectively disqualify them.

• The rule was arbitrary and capricious. The department could not identify a single PSLF-eligible employer that had ever engaged in the activities the rule described.

• The rule violated the First Amendment. It targeted organizations whose missions or viewpoints the administration opposes.

• The rule was unconstitutionally vague. “Substantial illegal purpose” provided no meaningful standard for employers or the department to follow.

These arguments carried the day in both courts.

Last updated: July 2026

The lawsuits ended with the rule being struck down — twice in one day.

On June 30, 2026, Judge Myong J. Joun of the U.S. District Court for the District of Massachusetts granted summary judgment against the Department of Education in the consolidated cases brought by the nonprofit coalition and the 22-state coalition. In a 68-page decision, the court held that the rule exceeded the department’s statutory authority, was arbitrary and capricious, was unconstitutionally vague, and violated the First Amendment. The court vacated the rule entirely. “Administrations change with elections; criminal laws do not,” the decision observed.

The same day, the U.S. District Court for the District of Columbia reached the same result in the case led by the Robert F. Kennedy Center for Justice and Human Rights, holding that the rule conflicted with the Higher Education Act, which does not give the Secretary authority to limit what counts as a public service job.

Because the rulings came one day before the July 1, 2026 effective date, the rule never took effect. Vacatur is stronger than an injunction: the rule was not paused — it was erased. Employer eligibility for PSLF is governed by the same standard that applied before the rule was finalized: all government agencies and 501(c)(3) nonprofits qualify.

The Department of Education may appeal — the Massachusetts ruling to the First Circuit and the D.C. ruling to the D.C. Circuit. As of late July 2026, it had not filed an appeal; department officials said they were evaluating next steps. An appeal alone would not reinstate the rule.

Timeline of key events:

• March 7, 2025: Executive Order 14235 signed

• June–July 2025: Negotiated rulemaking sessions

• October 30–31, 2025: Final rule published

• November 3–4, 2025: Three federal lawsuits filed

• Week of February 9, 2026: Summary judgment motions filed

• June 30, 2026: Both courts vacate the rule, one day before its effective date

• July 1, 2026: The rule’s would-have-been effective date passes with the rule already vacated

This section will be updated if the department appeals or other developments occur.

Nothing about employer eligibility changed. The steps that protected borrowers during the litigation are the same ones that make sense now.

• Keep certifying employment. Submit the PSLF form through the PSLF Help Tool on studentaid.gov at least once a year and whenever you change jobs. Certified months are locked into your payment count.

• Check your payment count. Your qualifying payment count and employment history show on studentaid.gov. Confirming where you stand now makes any future question easier to resolve.

• Watch for an appeal. The Department of Education can appeal the June 30 rulings. If it does, the process would take months, and the rule stays vacated unless a higher court reverses the decisions. No action is needed in the meantime.

• Don’t confuse this rule with the PSLF changes that did happen. Separate changes to which repayment plans qualify for PSLF took effect July 1, 2026 — see what changed for PSLF in 2026 and the full list of federal student loan changes that took effect July 1, 2026.

Borrowers who have reached 120 qualifying payments can apply for forgiveness as usual. For the program’s full requirements, start with our Public Service Loan Forgiveness guide.